It was a case of sell the rumour, buy the fact, for the Australian dollar on Wednesday.

In the lead-up to
Glenn Stevens
’ testimony to parliament’s economics ­committee, the dollar was changing hands below US89¢ for the first time in four months, as traders expected more jawboning from the governor of the Reserve Bank of Australia.

But it didn’t pan out that way.

Perhaps it was because the $A has already significantly underperformed all other currencies since the RBA started talking the $A down in late October, but selling certainly accelerated last week when Stevens said he preferred the currency closer to US85¢ than US95¢. That raised a few eyebrows and sparked a few sell orders across financial markets because central banks aren’t normally so specific when it comes to currency targets.

But on Wednesday, by the time the governor had finished being grilled by politicians in Canberra, the dollar was back above US89¢. Stevens, it seemed, was more interested in using his appearance before the committee to talk about economic reform and how quickly that can be done. The other key point of his testimony was the sense that falling interest rates don’t hold sway over consumers like they used to.

The governor said there are “few serious claims that the cost of borrowing per se is holding back growth" and that rates are already low so it is necessary for “firms and individuals to take advantage of that situation . . . monetary policy can’t force spending to occur".

Open to idea of lowering rate

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Of course, the bank is still open to lowering the cash rate further but like most central banks it would probably welcome government help rather than having to do everything itself.

That said, the $A is poised to be one of the worst performers if the US Federal Reserve begins to taper in the early hours of Thursday morning.

On quantitative easing, Stevens noted that policy and shifting policy is always “disruptive" when the Fed changes course, adding that was his hope.

There are plenty out there who think that the US dollar rising will be the easiest way to bring the $A down.

It’s not unusual for currency ­forecasters to be the butt of jokes on a trading desk.

For sure, economists can sometimes get their macroeconomic forecasts wrong. But getting the direction of a currency right is tricky because no one can be really sure what is pushing a currency around at any given time.

Speculators, hedge funds, travellers, business, real money accounts or even central banks can all be in there moving foreign exchange markets from one moment to the next.

Like most things, the drivers behind currency movements are easy to identify after the fact.

But as the currency moves in whatever direction, it becomes a case of whichever story best matches the facts becoming “the story". That remains true only until a better story comes along.

There’s little doubt a sustained fall in the dollar would have a positive effect on our economic growth.

Roughly, a US5¢ drop in the currency is about the same as a one-quarter of a percentage point cut in the official cash rate.

It’s also good news for companies who generate a chunk of their profits overseas, such as
Coca-Cola Amatil
,
Amcor
,
Brambles
and
Westfield
.

On the flip side, a sustained fall is seen as bad news for listed retailers such as
Harvey Norman
,
The Reject Shop
and
JB Hi-Fi
, since the price they pay in ­Australian dollars for products sourced overseas is likely to rise.